Why you’ll never find a hedge fund called Bob

I’m reading a book about finance at the moment and in it I came across a hedge fund called:

The High-Grade Structured Credit Strategies Enhanced Leverage Fund

Quite a mouthful, eh? And quite odd, you’d think, for the fast, efficient world of high finance. Isn’t it the case that the figures we’re talking about here are so large that anything you can do to make your organisation more efficient will shave basis points off your margins and save you billions?

Just imagine how much those extra bits and bytes and pixels and things must be adding to their corp comms budget. Not to mention all that expensive executive talent being expended on longer-than-necessary conversations, like:

Good morning, you’re through to the High-Grade Structured Credit Strategies Enhanced Leverage Fund, how can I help you today? Hello? Are you there?

Or how about:

Hi there, this is Bill over at the High-Grade Structured Credit Strategies Enhanced Leverage Fund. We’re running low on paperclips over here – wondering if you can fix me up with a new batch? Yes, the large ones. We don’t do company memos shorter than 110 pages over here at the High-Grade Structured Credit Strategies Enhanced Leverage Fund.

And this:

Hello, tweeps! Just getting started on this Twitter thingy. DM me if you fancy investing in the High-Grade Structured Credit Strategies Enha

Even abbreviated (H-GSCSELF, one assumes) the name reads like a randomly generated, hard-to-hack password.

So why, if you were going to launch a hedge fund, would you not call it something simple and human and, well, short?

I don’t know, like Roger, perhaps?

Or Bob?

Hmm. Let’s take a closer look at the name, shall we.

High-Grade This high-grade stuff they invest in sounds good, doesn’t it? Strong. Pure. Uncut. A little bit glamorous and daring. I’m picturing the financial equivalent of the qualiddy produc’ that Proposition Joe can get his hands on in The Wire.

Strategies We wouldn’t want you to think we’d give your hard-earned dosh to the first Bernie Madoff that came along. Nope, we’ve got a strategy for doing that – in fact, we’ve got several strategies. All our preferred pyramid-scheme-touting suppliers of financial snake oil are fully vetted by our Compliance team, you know. Due diligence an’ all.

Enhanced Leverage Not improved, you realise. That would imply that Version 1.0, in which we offered unenhanced leverage, wasn’t fit for purpose. Our previous offering was a bespoke best-practice, integrated financial solution. But if you like your investments fortified with extra financial vitamins, you won’t be disappointed when you choose Enhanced Leverage.

So at this point, you’re probably thinking that you’d quite like to invest in the High-Grade Structured Credit Strategies Enhanced Leverage Fund.

Sod it, let’s just call it Bob before I lose any more of you.

Well, dear reader, I hate to disappoint you. But Bob is no more. Nope. He’s disappeared. Kaput. Gone the way of Monty Python parrots.

So who was Bob? And why is he no longer among us?

Well, Bob was a hedge fund with close links to Bear Stearns. The hedge fund, in fact, that collapsed last year, pulling down – in its high-grade, structured, strategically enhanced and leveraged wake – its hapless banking benefactor. And if it weren’t for you and me, the equally hapless tax payer, it would have taken the entire financial system with it too.

So what had the people who worked at Bob been dabbling in that brought it to this dismal fate?

Well, it seems that poor old Bob was merely a conduit for investing in long, complex, opaque chains of investments that bore little connection to the real world and that nobody really understood.

Investments with names made up of equally long, complex, opaque chains of words that bore little connection to the real world and that nobody really understood. Names like:

So you see, Bob – simple, uncomplicated, down-to-earth Bob, with his easy-going manner and his feet firmly on the ground – was never a role model for the High-Grade Structured Credit Strategies Enhanced Leverage Fund.

10 comments so far . . . come and pitch in!

Clare, It’s ironic that our financial house collapsed in large part because of “structured” financial products. Bob would never have approved. The mind numbing complexity of financial products seem to me to be product differentiation for the sake of product differentiation. The minuscule point of advantage one product purports to deliver over another can be washed away by one minuscule, unexpected turn in the economy. Bob was much more of a roll with the punches guy. I miss him.

You know what though, Brad. I think once all this is over he’ll be back. People no longer trust financial institutions that have their tentacles in all sorts of nefarious places.

Until, that is, the next generation discovers the joys of “financial innovation” (aka thinking you’ve found a way to recycle debt into nothingness). Then, once again Bob will be killed off and usurped by his more glamorous cousin, called [insert random list of impressive, businessy sounding buzzwords here].

I would like to think that we’ve learned a lesson about who really profits from over-complexity in finance, but I’m afraid the royal we will jump on the next bandwagon promising returns ‘you can’t find anywhere else’ cause of the ‘secret, strategic system.’ I’m glad you mention Buffet. I believe he also recommends you only invest in what you understand.

Clare/Fred, Bad news for you both. It looks to me as though financial products are getting even more complex, as if greater complexity will undo the damage caused by overly complex dealings. What ever happened to the concept of “repeal”? Didn’t we once repeal laws when they were no longer necessary? Now, we just seem to add new laws on top of the old ones.

I think this legal inflation (‘iterative legal framework enhancement strategy’ anyone?) has been popular in Britain since at least 1997.

Adding laws on top of laws reminds me of things I saw in my programming days. I think the technical term is ‘cruft’. Crufty code appears to work at first. Later, it falls over and takes your faith in the program and programmer with it. Let’s hope our legal eagles have the sense to do as you suggest Brad. Repeal and replace.

Fred – yep, and Buffet is also an advocate of plain English (check out his introduction to the SEC plain English guide)

Brad – it pained me to discover this morning that the policing of hedge funds is now known as “micro prudential regulation”. It seems that the complexity of the regulations is being reflected in the language used to describe them. None of it seems to bear any relationship to the real world.

Crufty is an excellent word, right up there with “Bob”. To carry the conversation even further past its natural end, I should mention that lately I’ve taken a shine to the word “kludge”, one which Chris is no doubt familiar with. Kludge is programming code that clumsy but somehow effective. We must get rid of financial instrument cruft and replace it with kludge, at the very least.

I recall that one of my fellow PhD students was doing research on the fact that many words (often of Germanic origin) that begin with s + certain consonants have negative connotations – e.g. slimy, smarmy, smear, sly, sleazy.

Similarly, it strikes me that “crufty” and “kludge” are very like existing words that convey the idea of turgidity – e.g. clogged, clump, clod, clunky, crumpled, crusty. I think all those consonant clusters have a fittingly congested feel.

Clare

p.s. Ever counted the number of consonant clusters in the phrase “consonant cluster”?